Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market

We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics. JEL Codes: L11, C73, D21, L81 Contact Information: Ellison: Department of Economics, M.I.T., 50 Memorial Drive, Cambridge, MA 02142; email [email protected]. Snyder: Department of Economics, Dartmouth College, 301 Rockefeller Hall, Hanover, NH 03755; email [email protected]. Zhang: Department of Economics, M.I.T., 50 Memorial Drive, Cambridge, MA 02142; email [email protected]. Acknowledgments: The authors are grateful to Michael Baye, Steve Berry, Judy Chevalier, Glenn Ellison, Jakub Kastl, John Leahy, Emi Nakamura, Whitney Newey, Peter Klenow, and Jidong Zhou for their insightful advice, to Masao Fukui for outstanding research assistance, and to various seminar participants for helpful comments.